Yesterday, the Fed announced that it did not cut the interest rates because inflation is still high.
However, the price of Bitcoin ended up reacting with a rise, partly due to what President Powell said yesterday in the press conference.
Fed: inflazione ancora elevata in USA
The latest data available, those relating to December, indicate rising inflation in the USA compared to the previous three months.
However, the Fed primarily uses core inflation data to make its decisions, rather than the highly volatile general inflation data.
In December, core inflation in the USA fell to 3.2%, but it remains well above the target della Fed.
Indeed, the reduction compared to the previous months was minimal, because from September to November it was fixed at 3.3%, while already in July and August it was at 3.2%.
In fact, therefore, it has been six months since core inflation in the USA stopped falling, and this is somewhat concerning to the Fed regarding the path taken to bring it back to 2%.
The Fed’s Rate Cut
The peak of recent years reached by the Fed’s interest rates was hit in July of last year, when they rose to 5.5%.
Since then, they have remained at that level, particularly high, until September, when the Fed reduced them by 50 basis points, bringing them to 5%.
At that point, it seemed that a path of rate decrease had been undertaken, which, however, has currently halted after the last cut in December, bringing them to 4.5%.
At this moment, the markets are betting that most likely even in March the Fed will leave the cuts unchanged (in February the FOMC, which decides on rates, will not meet).
Until the first half of December, further cuts were considered possible to bring rates to at least 4% in relatively short times. Instead, as of today, it is hypothesized that it could reach 4% only at the end of the year, either with the FOMC meeting at the end of October, or even with that of December.
What the Fed said yesterday regarding rates and inflation
The official statement that accompanied the news of the missed cut yesterday slightly frightened the markets, because it no longer contained explicit references to the path of reducing inflation, which were present in previous similar statements.
However, later on, during the usual press conference, President Jerome Powell toned down the rhetoric, effectively describing a situation that is substantially good, albeit with evident light and shade.
Powell has reiterated that the USA economy remains strong, with GDP growth likely to exceed 2% in 2024.
He also recalled that labor market conditions are substantially stable, despite high interest rates, and especially that unemployment is low, in relation to what has happened in recent years.
However, he often mentioned the word “uncertainty” to indicate that the central bank is not actually following a predetermined path regarding rate cuts, and that each decision is made case by case depending on the new data that continuously emerges, and which, in fact, cannot be predicted with precision.
The impact on the price of Bitcoin (BTC)
In fact, it was a neutral decision and press conference, so much so that the financial markets reacted with caution.
However, responding to the last question at the press conference, Powell explicitly and publicly stated that US banks should not have regulatory issues in providing crypto services to citizens, if they do so in compliance with the law.
Powell had never spoken so clearly about it in public, so much so that his words have been interpreted by the crypto markets as a sort of trend change. On the other hand, the new Trump administration is strongly in favor of the crypto market, therefore even the Fed now has fewer fears in declaring itself somehow favorable.
And so the price of Bitcoin at the end of the press conference rose from $103,000 to $104,000, while during the night it also rose to $105,000.
Given that the financial markets reacted in a substantially neutral way to yesterday’s events, this rise in the price of Bitcoin seems to have been triggered by that last response given by Powell at the press conference.
So while on one hand the Fed’s monetary policy will remain restrictive for quite a while, with a negative impact on the US financial markets already largely priced in, things could change for Bitcoin and the crypto sector, because this month of January 2025 might have indeed opened a new era thanks to the new US policies. And it is also possible that this epochal change has not yet been fully priced in by the markets.